Latest / Becker’s Healthcare Podcast / Alan Condon on ACA Headwinds, Hospital Margins, and Slowing Elective Surgeries

Transcript

Alan Condon on ACA Headwinds, Hospital Margins, and Slowing Elective Surgeries · Becker’s Healthcare Podcast

• 0:02
  - The strategic agenda facing hospital and health system
• 0:04
  - leaders right now is not a short list.
• 0:07
  - Growth in a consolidating market, sustainable margins in
• 0:09
  - a reimbursement environment that rarely moves in your
• 0:12
  - favor,
• 0:12
  - a tech investment cycle that demands both urgency
• 0:15
  - and discipline,
• 0:16
  - and a workforce story that is still being
• 0:19
  - written.
• 0:20
  - Eker's fourteenth annual CEO CFO roundtable brings together
• 0:23
  - more than 1,500 executive level attendees and nearly
• 0:27
  - 400 speakers across four days of sessions that
• 0:30
  - are designed to help c suite leaders benchmark,
• 0:32
  - pressure test, and sharpen their priorities.
• 0:35
  - Not in the abstract, but against the real
• 0:37
  - decisions they'll face heading into the next year.
• 0:39
  - It's the kind of event you leave with
• 0:40
  - a clear sense of where you stand and
• 0:42
  - what comes next.
• 0:44
  - So join us November second through the fifth
• 0:46
  - at the Hyatt Regency in Chicago,
• 0:48
  - and come ready to do the hard thinking.
• 0:50
  - Register on our events page at beckershospitalreview.com
• 0:54
  - by clicking on the events tab in the
• 0:56
  - upper right.
• 0:58
  - This is Scott Becker with the Becker's Healthcare
• 1:00
  - podcast.
• 1:01
  - I'm thrilled today to be joined by Alan
• 1:03
  - Condon, and Alan joins us regularly to discuss
• 1:06
  - typically financial and health system issues on the
• 1:09
  - Becker's Healthcare podcast.
• 1:11
  - He's an editor in chief at Becker's Healthcare,
• 1:13
  - remarkable journalist.
• 1:14
  - Alan, let me tee it up for you.
• 1:17
  - What are a couple of stories you're watching
• 1:18
  - currently in in health care finance in health
• 1:20
  - care systems?
• 1:22
  - Yeah. I think really interesting time to kinda
• 1:24
  - jump back on the podcast, Scott. I think
• 1:26
  - we just finished covering
• 1:29
  - the earnings calls from a lot of the
• 1:31
  - big payers, a lot of the big for
• 1:32
  - profit health systems. So namely HCA,
• 1:35
  - CHS,
• 1:36
  - UHS, and Tenant Healthcare. And just a kind
• 1:39
  - of a a ton of really interesting kind
• 1:41
  - of quotes, what executives are saying, what they're
• 1:43
  - seeing in their q two results, and what
• 1:45
  - we can kind of expect for the nonprofit
• 1:48
  - systems and they start reporting their q two
• 1:50
  - results in the in the coming week or
• 1:51
  - so. So I I think one
• 1:54
  - big, big takeaway
• 1:55
  - that that every executive on each of those
• 1:57
  - four systems talked about was unsurprisingly
• 2:00
  - was was the the headwinds
• 2:02
  - of the ACA. So
• 2:04
  - it really seems like the the ACA hits
• 2:07
  - on q two finance is really bigger than
• 2:09
  - any one of those four systems had initially
• 2:11
  - modeled at the start of the year. So
• 2:14
  - the no secret to you, it's any of
• 2:16
  - our listeners, the the enhanced premium tax credits
• 2:19
  - expired December
• 2:20
  - 31.
• 2:22
  - Every for profit house system knew that that
• 2:24
  - would cost them this year. What they got
• 2:26
  - wrong was where those patients will ultimately go.
• 2:30
  - So
• 2:31
  - HCA had modeled that around about eighty percent
• 2:34
  - to eighty five percent of people losing
• 2:37
  - exchange coverage will become uninsured.
• 2:40
  - But the actual number in HCA
• 2:43
  - CFO Mike Marks' words
• 2:45
  - was almost all of those patients. So HCA
• 2:48
  - assumed those patients would use fewer hospital services
• 2:51
  - once they lost that co that coverage.
• 2:53
  - That did not happen either. So in terms
• 2:56
  - of the numbers for HCA
• 2:58
  - exchange, adjusted admissions fell 15% year over year.
• 3:02
  - Uninsured admissions
• 3:03
  - rose 50%
• 3:05
  - year over year, and then uninsured patients now
• 3:08
  - account for more than 10%
• 3:10
  - of HCA's
• 3:11
  - equivalent admission. So
• 3:14
  - I think in terms of HCA's
• 3:16
  - ultimate headwind for the ACA for this year,
• 3:19
  - they initially expected that that payer mix shift
• 3:22
  - would cut its adjusted EBITDA
• 3:24
  - by about 600,000,000
• 3:26
  - to 900,000,000
• 3:27
  - for the full year. After this q two
• 3:29
  - results, they raised that to between $1,000,000,000
• 3:33
  - to $1,200,000,000
• 3:35
  - expected hit
• 3:36
  - on their revenues
• 3:37
  - from the ACA headwind. So
• 3:40
  - huge huge,
• 3:42
  - impact that we're seeing from from the for
• 3:44
  - profit operators, what they saw in q two,
• 3:47
  - and what they expect to carry on for
• 3:49
  - over the next couple of quarters. So certainly,
• 3:52
  - big, big, challenge there. I know that we'll
• 3:54
  - see some similar trends,
• 3:56
  - on the nonprofit systems when they start to
• 3:58
  - report their q two results shortly as well,
• 4:00
  - Scott.
• 4:01
  - Thank you. And and absolutely fascinating to watch.
• 4:03
  - And I and I I know that ETA's
• 4:05
  - annual profits are still,
• 4:08
  - ultimately,
• 4:10
  - in incredible.
• 4:12
  - So
• 4:13
  - this is I think they're look at they're
• 4:15
  - losing about 1,000,000,000 in revenue here.
• 4:19
  - They still have EBITDA about 15 to 16,000,000,000
• 4:22
  - and net income, six to seven billion.
• 4:25
  - So
• 4:26
  - even though it says a negative impact on
• 4:28
  - them,
• 4:29
  - there's probably not that much sympathy out there
• 4:31
  - for HCA itself,
• 4:32
  - but it's more the issue of how this
• 4:34
  - then leads over into the not for profits
• 4:38
  - that generally don't have anywhere near those type
• 4:41
  - of profit margins, because I think where there's
• 4:42
  - probably much greater concern.
• 4:45
  - Is that a fair assessment?
• 4:48
  - Absolutely. Yeah. I think,
• 4:50
  - to your point, I believe HCA in terms
• 4:52
  - of their their actual operating margin for q
• 4:55
  - two, I believe, posted at $1,700,000,000
• 4:57
  - in terms of net income. That's about an
• 4:59
  - 8.4%
• 5:00
  - margin. To your point, Scott,
• 5:02
  - a little bit down from what they posted
• 5:04
  - at last of the second quarter twenty twenty
• 5:06
  - five. But when we see those nonprofit systems,
• 5:09
  - the likes of your ascensions, your your common
• 5:11
  - spirits, Trinity Health and whatnot, usually operating on
• 5:15
  - around about a a flat or 1% margin
• 5:17
  - there thereabouts.
• 5:18
  - We expect to see, certainly a a big
• 5:21
  - headwind there, maybe eating into some of their
• 5:23
  - margins this year through the remainder of the
• 5:24
  - year. So,
• 5:26
  - no doubt to your point, not a much
• 5:27
  - sympathy for the big for profit operators like
• 5:29
  - KCA still performing very, very well on their
• 5:31
  - ends, but certainly spells some, some particular challenges
• 5:35
  - for the nonprofit operators which do operate on
• 5:38
  - run on a lot slimmer margins.
• 5:41
  - Thank you very much. No. Fasting to watch
• 5:43
  - and and just really interesting. And the other
• 5:45
  - for profits took similar heads.
• 5:48
  - And I guess you would say that the
• 5:49
  - for profits
• 5:50
  - probably have a little bit easier time controlling
• 5:53
  - some of the indigent care provided than the
• 5:56
  - not for profits. In in some ways, based
• 5:58
  - on just where they choose to put their
• 6:00
  - hospitals and health systems, where they choose to
• 6:02
  - compete with the not for profits
• 6:05
  - being in
• 6:06
  - every area and some of the for profits
• 6:08
  - being a little bit more selective in terms
• 6:10
  - of where they've located their hospitals, where they
• 6:12
  - locate their strategic advances, and so forth. So
• 6:15
  - we assume that if HCA takes a good
• 6:17
  - hit on this, that the not for profits
• 6:19
  - probably take a a a bigger hit,
• 6:23
  - quite frankly.
• 6:24
  - Absolutely. Yeah. And I guess it ties a
• 6:27
  - little bit into the the next story or
• 6:29
  - kinda trend that I'd I'd like to pull
• 6:31
  - out of those Arnie's cause as well. And
• 6:33
  - that was we did see across the board,
• 6:36
  - your HCA, CHS,
• 6:38
  - and at UHS,
• 6:39
  - all executives again pointed to,
• 6:42
  - some elective surgery, slowdown, electric surgery surgery
• 6:46
  - softness in q two.
• 6:48
  - The interesting thing was none of those executives
• 6:50
  - that those systems seem to agree on what
• 6:53
  - was the ultimate reason behind this. So,
• 6:57
  - again, HCA, I think, electives are about a
• 7:00
  - third of HCA's inpatient volume, but that dropped
• 7:03
  - about 6%
• 7:04
  - in the second quarter after a 2% decline
• 7:07
  - last year.
• 7:08
  - Emergency
• 7:09
  - inpatient surgeries, the other two thirds actually grew,
• 7:12
  - which I guess accounts for what we were
• 7:14
  - just talking about in terms of the ACA.
• 7:16
  - Folks losing coverage but still making their way
• 7:19
  - into the emergency rooms despite not having that
• 7:21
  - coverage.
• 7:23
  - Community health systems,
• 7:25
  - same store surgeries, basically flat,
• 7:28
  - but inpatient surgeries fell by about four percent.
• 7:31
  - Interestingly, this was led by orthopedics.
• 7:34
  - So hips,
• 7:35
  - knees, shoulders,
• 7:38
  - CHS, CHO Kevin Hammonds that said that those
• 7:41
  - clinic visits and orthopedic MRIs are running ahead
• 7:44
  - of last year. But interestingly,
• 7:47
  - quote, unquote, this those visits and screenings are
• 7:50
  - not translating
• 7:51
  - into surgery. So clinic visits, MRI, some of
• 7:54
  - those patients visits are going ahead, but those
• 7:57
  - visits aren't ultimately translating into elective surgeries for
• 8:00
  - for the health system.
• 8:02
  - And I think that's the that's the affordability
• 8:03
  - read that we hear so much on those
• 8:05
  - earnings calls. Commercial insured patients who cannot clear
• 8:08
  - their deductibles
• 8:10
  - are likely postponing their surgeries, which is saw
• 8:13
  - a bit of an impact in q two.
• 8:15
  - So very, very interesting when we when we
• 8:17
  - hear what what's happening at the nonprofit systems
• 8:19
  - again, but also what will happen in q
• 8:21
  - three, q four, with some of these commercially
• 8:24
  - insured patients as well as they continue to
• 8:26
  - potentially
• 8:27
  - defer or postpone some of these surgeries.
• 8:30
  - Quite an interesting trend that that all executives
• 8:32
  - and all those for profit operators also alluded
• 8:35
  - to, Scott.
• 8:36
  - No. Literally
• 8:38
  - remarkable and and and fascinating, quite frankly, because
• 8:40
  - what you see is the is the patient
• 8:43
  - cost, the consumer cost of health care goes
• 8:46
  - up. You you are seeing something we've seen
• 8:48
  - over the years as patients be a little
• 8:50
  - more cautious in in when they have their
• 8:52
  - surgery, what they do in elective surgeries,
• 8:54
  - and that has an impact on hospital bottom
• 8:56
  - lines. And, again,
• 8:58
  - CHS and HCA able to understand this pretty
• 9:01
  - well, particularly the newer CHS, which has been,
• 9:05
  - taking their debt down significantly in much better
• 9:07
  - shape than it was a a few years
• 9:08
  - ago, and HCA continued to do great.
• 9:12
  - But this impact on not for profit systems
• 9:14
  - that have much smaller margins can be very
• 9:17
  - substantial. People are delaying their elective surgeries. It's
• 9:19
  - one of the things that it, hospitals actually
• 9:22
  - make money from.
• 9:23
  - Yeah. So I think we're really, really interested.
• 9:25
  - Gonna speak some so we've got some CFO
• 9:27
  - interviews in the pipeline for this week and
• 9:30
  - next. Some of the nonprofit systems are also
• 9:32
  - gonna be hopping on some of the big
• 9:34
  - earnings calls, the likes of CommonSpirit and whatnot,
• 9:36
  - Trinity,
• 9:37
  - to get a better sense of how their
• 9:39
  - q two
• 9:40
  - performed and what they're looking at for q
• 9:42
  - three. So, certainly, these these, insights from the
• 9:45
  - for profit operators give us a little bit
• 9:46
  - of an insight into what we can expect.
• 9:49
  - Certainly, a very challenging reimbursement and operating environment
• 9:52
  - out there, and it doesn't look like, unfortunately,
• 9:54
  - that it's gonna get any easier when we
• 9:56
  - think about what's coming down the pipeline in
• 9:57
  - regards to Medicaid, late twenty twenty six, into
• 10:00
  - 2027
• 10:00
  - as well.
• 10:01
  - But more to come on this, Scott. We'll
• 10:03
  - pay close attention to it once we start
• 10:04
  - reporting on the non profit systems too.
• 10:07
  - Eowyn, thank you. I mean, fascinating to watch,
• 10:09
  - but the the big for profit systems seeing
• 10:12
  - a decrease in income
• 10:14
  - based on patients coming off the ACA coverage
• 10:17
  - and into non insured coverage, but still showing
• 10:19
  - up at that hospital, of course, because they
• 10:21
  - still need services. They still need care. And
• 10:23
  - then also a reduction in elective surgeries and
• 10:26
  - some of the surgical volumes, which do drive
• 10:29
  - on the profitability
• 10:30
  - of the for profit and not for profit
• 10:32
  - systems. So we're watching this closely again, and
• 10:35
  - I don't mean to be negative, but
• 10:37
  - HCA is still performing just fantastically well overall,
• 10:41
  - but this does have the ability to have
• 10:43
  - a big impact on some of the not
• 10:44
  - for profit systems in their profit margins.
• 10:47
  - Absolutely. Yeah. I think, we certainly pay close
• 10:50
  - attention to those future results in the coming
• 10:52
  - in the coming weeks, but, gives us great
• 10:54
  - little insight into what we can expect for
• 10:55
  - the nonprofit system. So always a pleasure to
• 10:58
  - catch up with you, Scott, and thanks for
• 10:59
  - putting a a nice footnote on that for
• 11:00
  - us. No. Thank you so much. I'm looking
• 11:02
  - forward to talking to you again after you
• 11:04
  - talk to a bunch of the CFOs and
• 11:05
  - see what your perspective is. Thank you so
• 11:07
  - much for joining us. Alan Condon, Simply Remarkable.
• 11:09
  - Thank you for joining us on the Becker's
• 11:11
  - health care podcast. Thank you very much.
• 11:13
  - Thanks, Scott.